Kleen Energy Says It Was Not Responsible For Plant Explosion In Middletown

September 30, 2010|By EDMUND H. MAHONY, emahony@courant.com

The owners of Kleen Energy Systems are asserting that they should not be held responsible for operational delays caused by a deadly February explosion that damaged their nearly completed electric plant in Middletown because they had turned over total control of the plant to their construction contractors.

If the plant owners succeed in their claim that the cause of the explosion was beyond their control, they can invoke language in their state-approved contract that will enable them to avoid paying damages for failing to meet a deadline to have the plant capable of producing electricity by Dec. 1.

The argument by the owners that they had no control over events leading to the Feb. 7 explosion that killed six workers has been long-anticipated and is being met with skepticism in some quarters. The contract language that Kleen Energy is using in an effort to avoid responsibility for the disaster is known as force majeure.

In Kleen Energy's contract, force majeure is defined as an event or circumstance "such as natural catastrophes, terrorism, war, riots or acts of God" that is not the result of negligence and prevents a contractual party from fulfilling its obligations. Kleen Energy is arguing that the explosion was an event beyond its control and not the result of its negligence.

Rather, Kleen Energy appears to place responsibility for the explosion on its principal construction contractor, O&G Industries.

"On the day of the explosion and fire, the contractor was in sole care, custody and control of the facility," Kleen Energy said in a Sept. 28 letter that has been filed with the state Department of Public Utility Control.

Representatives of Kleen Energy declined to discuss the letter or their assertion of force majeure.

A variety of experts have concluded that the explosion and fire that damaged nearby houses was sparked by construction workers using electrical equipment in the vicinity of an enormous pool of vented natural gas. The federal Occupational Safety and Health Administration has fined Kleen Energy's construction contractor and subcontractors $16.6 million for more than 100 safety violations.

State Consumer Counsel Mary J. Healy said Thursday that her staff of public consumer advocates might challenge Kleen Energy's claim that it is not responsible for the explosion.

"Our initial impression is that this claim of force majeure looks to lack merit," Healy said Thursday. She said her staff is analyzing the state-approved contract that controls many aspects of the plant's construction and operation "to see what, if any, our role should be as the state's ratepayer advocate."

Other lawyers said that Kleen Energy might experience difficulty trying to pass responsibility for the explosion to contractors it hired to build its plant.

The force majeure provision is contained in a long and complex 2007 contract between the Connecticut Light & Power Co. and Kleen Energy that sets out construction and operational milestones for the $1 billion, high-efficiency power plant that is designed to generate electricity by burning natural gas.

A CL&P spokesman said the utility will not discuss Kleen Energy or the contract, which was approved by the DPUC. A department spokesman said its role in the contract process was simply to approve a private agreement negotiated by and between CL&P and Kleen Energy.

But others familiar with the process, including state legislators and utility analysts, have said that some contract provisions were pressed on CL&P by the state and that CL&P has been quietly critical of some of the costs that the contract requires it to bear. Notable among them are the size of the payments that CL&P is required to make to Kleen Energy based on Kleen's capacity to produce electricity.

CL&P is obligated to make those capacity payments for 15 years after the plant becomes operational. The Fitch rating service estimated in a report two years ago that CL&P's capacity payments will account for 60 percent of Kleen Energy's cash flow over the period. Analysts said the guaranteed cash flow helped Kleen Energy attract construction financing, but the cost will likely be passed on to CL&P ratepayers.

CL&P and its ratepayers could benefit if Kleen Energy fails in its assertion of force majeure. The contract obligates Kleen Energy to begin paying liquidated damages to CL&P within five days of Dec. 1 if the plant is not operational. Kleen Energy says the plant is now expected to be operational on April 8, 2011.

If force majeure is found to apply in Kleen Energy's case, the company could be spared paying liquidated damages for as long as 18 months beyond Dec. 1.

In July, CL&P anticipated the force majeure claim and posed a series of pointed questions to Kleen Energy in a letter that it filed with state utility regulators.